01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author1
Developments in
the pensions
landscape since
2008
Adrian Boulding
Pensions Strategy
Director
Legal & General
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author2
Not the Domino Effect
• While banks collapsed around us
– Insurers stood firm
• Banks borrow short and lend
long
• Insurers carefully match
liabilities and assets
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author3
Means Testing Worries Eased
• 2008 Pensions Act was passed when Government
promised a full review of the impact of means testing
• 5th February 2009 – DWP Research Report No 558
– Over 70% of pension savers will get back more than
twice what they put in
– Over 95% will see an improvement greater than the
cost of their contributions
– No readily identifiable group of losers
“Even after inflation, virtually everyone
can expect to get back more than they
put away”
Rosie Winterton, Pensions Minister
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author4
Higher Limits for ISAs
• New ISA limits
– £10,200 ISA contributions each year
– £5,100 of this can be a cash ISA
• One in five use ISAs for retirement saving
– Particularly amongst ages 35-54
– Source : Ipsos-Mori
“This is welcome news”
Daily Mail
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author5
TPR Wakes Up to Increasing Longevity
• TPR has published mortality guidance for final salary trustees
– Duty to determine how fast past members have been dying off
– Explicit assumption required for mortality improvement
• Assumption must be declared to TPR
• Over optimism may trigger further scrutiny
“We are encouraged that
the regulator has listened to
concerns”
Hymans Robertson
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author6
Alistair Darling – 22nd April 2009
“In this Budget there will be new measures, to help
pensioners and savers on middle and modest
incomes.
“But I intend to address the anomaly which sees a
tiny proportion at the top taking a large slice of
the help we give people to save.”
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author7
What should high earners do ?
• Those with taxable income between £100,000 and
£113,000 should make additional pension contributions
to reduce income to £100k
– Effective 60% relief on these contributions
• High earners with income above £150,000 should
– Maximise pension contributions within the anti-
forestalling rules
Obtaining 50% tax relief in 2010/11
– Or, reduce their income below £150,000
Perhaps through charitable donations
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author8
Case study 2009/10
• A middle manager is made redundant
• Taxable income for 2009/10 is
– Earnings £60,000
– Redundancy £90,000 (taxable element)
– Investments £ 5,000
– Total £155,000
• If he puts the redundancy into the pension scheme, he faces a tax charge of £14,000
• But if he gifts £4001 to charity, grossed up through gift aid to £5001, then his taxable income falls below £150,000
– No tax charge, and the charity does nicely too !
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author9
Make Hay While the Sun Shines
• 40% tax relief on pensions still available on incomes
below £150,000
• Annual Allowance £245,000
• Several ways to encourage large contributions
– Create trading loss
– Bonus Sacrifice
– Sell other investments while capital gains are low
– Taxable Share Option Gains
– Severance Pay
– Inheritance
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author10
Not that you weren’t warned
• “Pensions tax relief warning”
• “Make payments to pensions as soon as possible”
• “Unlikely any change will be backdated”
– Financial Times, 10th April 2009
– 12 days ahead of the Budget
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author11
Early Access Ideas Gain Momentum
• Major PPI study last November
– Higher participation
Up to 6% greater take up
– Higher contributions
Between 0.6% and 3% of salary
– Much more money in pensions by 2050
“Central Scenario” – an extra £125 billion
“Optimistic Scenario” – an extra £400 billion
• Interest from all three political parties
• Cross industry group to evaluate practicalities
– Early access to tax free cash sum is favourite
– Pensions Pre-Commencement Lump Sum
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01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author12
Launch of Pension Quality Mark
• PQM Standards
– Contributions
– Governance
– Communications
• Helping employers to
– Recruit
– Retain
– Motivate
Got a good DC Pension ?
Don’t keep it a secret !
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author13
Pension Quality Mark
• Endorsed by
– Tony Hobman, TPR
– Kay Carberry, TUC
– Doug Taylor, Which?
– Andrew Harrop, Age UK
– Malcolm Small, Institute of Directors
– Lynn Collins, M&S
2/3rds of job seekers will
favour an employer with the PQM – NAPF Research
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author14
Retirement Age of 65 is lawful…….for now
• UK’s Employment Equality (Age ) Regulations 2006
– Contain a Default Retirement Age of 65
• On 25th September 2009, Mr Justice Blake in the High
Court ruled that this is legal
• Turner Review
– Save more or work longer
• Government committed to review the DRA in 2010
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author15
Tories will tackle Age 75 issue
• “We want to abolish compulsory annuitisation at age 75”
– George Osborne
– Addressing ABI Biennial Conference, May 2009
• Greater flexibility needed for three groups
– Like annuities, but aren’t ready by 75
– Want to get their hands on the money faster
– Wish to cascade wealth down generations
Solution – continue income
drawdown past 75, with higher
minimum and maximum limits
for the wealthy
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author16
Annuities sold by age of annuitant
ABI Sales Data, Q2 2009
0
5000
10000
15000
20000
25000
30000
50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author17
Purchases over £100,000 only
ABI Sales Data, Q2 2009
0
100
200
300
400
500
600
700
800
900
50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author18
Long Term Care makes it onto the policy
agenda
• By 2030, 4 million pensioners will need care
– 2 ½ million today
• Funding Options
– Partnership
– Optional private insurance
– Compulsory state insurance
• Once we have a system
– People will be able to save with confidence
“There are no easy answers”
Government Green Paper, Summer 2009
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author19
A Little Summer Madness
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author20
“PMI Encourages PADA to use the force”
- Pensions Week Headline
• “Consideration should be given to the the demand for
funds that meet the requirements of specific religious
and cultural groups such as Sharia Law or Jedi”
– PMI response to PADA’s investment consultation
• 2001 national census reveals
– 390,000 people who declare themselves to be Jedi
– An average of 0.7% of the population
– Jedi Hotspots include
Brighton
Wandsworth
Manchester
01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author21
Developments in
the pensions
landscape since
2008
Adrian Boulding
Pensions Strategy
Director
Legal & General